What is a Tracker Mortgage?
Tracker mortgages are commonplace for thousands upon thousands of people who have mortgages. Read on to find out what they involve and why they could be an excellent option for you!
The mortgage market is jam-packed with thousands of lenders telling you that the deal they are offering is the best one for you. While some of them may have a point, one of the common deals that they’ll offer will come in the form of a tracker mortgage. For those of you who are wondering what is a tracker mortgage, it’s simple. It’s essentially a variable rate mortgage that tracks the movement of another rate. Read on if you want to find out more!
How do tracker mortgages work?
Understanding what a tracker mortgage is shouldn’t be too difficult. In the UK, the rate that tracker mortgages track is either the base rate set by the Bank of England (certainly the most common tracked rate) or something called the LBOR rate. The base rate is essentially the official borrowing rate of the UK. So, this is basically what the Bank of England charges banks, building societies and lenders when they borrow money so that the economy can progress at a steady rate.
What this means for those of you on tracker mortgages is that if the base rate increases then so will the rate of interest that you are paying on your mortgage deal and vice versa.
For example: Your new tracker mortgage is set at BBR = 0.5%. This means that the interest you are charged on your mortgage is whatever the Bank of England base rate (BBR) is plus 0.5%. If the bank base rate was 2% then you would pay an interest rate of 2.5%. If the bank of England increased their rate to 3% then your rate would increase to 3.5%. Your rate is "tracking" the base rate.
What are the pros of tracker rates?
If you think you understand what a tracker mortgage is, great. Let’s look at why they might be the right option for you!
The important thing to remember is that while rates may go up and cause you to pay more on your monthly repayments, there is a flip side! This means that if rates go down then so will your monthly repayments. Also, introductory tracker rates can be one of the lowest variable rate mortgages out there in the property market. This makes them a potentially great option for those with limited finances in a stable financial market.
What can MO do?
Now, this is where we come in... At Mortgages Online, not only can we clarify to you what a tracker mortgage is, but compare the multitude of deals out there in the property market to find the best suited to you! So, check out the other articles on our site or get in touch!